Subsidy: How does it work since the pandemic?

When essential goods and services seem to be out of reach of the common man, there is an economic policy which the government can call upon to save the day: Subsidy.  

What is the subsidy? 

 A subsidy can be defined as a  benefit enjoyed by citizens, companies, and other institutions, which the government deems fit. It can be typically a monetary form or tax relief. It is offered to reduce some form of a financial burden to various institutions, and governments usually look at the best interest of the public, social relevance, and how it will affect the economy. 

Major things to notice in subsidies

 A subsidy is used as an alternative to market negatives and failures for better economic development. The government makes a direct monetary payment to peg the level of the price of a good and service to keep it affordable to citizens. Critics of subsidies say, it creates more burden and offers a pseudo relief to citizens. Furthermore, it is said to create a fake sense of growth in the economy. 

How does subsidy work?

 It works in three ways: welfare incentives, commodity rebates and unemployment benefits. And this has not changed since the pandemic. 

Welfare incentives

This is the payment made to citizens who cannot fend for themselves or have difficulty affording basic amenities like food clothing, and shelter. The government provides these incentives regularly to keep people off the streets and crime.

Commodity rebates 

This type of subsidy is made towards essential goods like gas, and food items. This money is paid directly to the firms to be able to supply citizens in cheap prices. The sustainable of this subsidy is questionable, but it is good in the short term. 

 Unemployment benefits

 This is a popular form of subsidy paid to citizens of working age, who are out of work with no fault of theirs. During the covid-19 pandemic, a lot of people received employment benefits from the government. However, these types of subsidies come with terms and conditions.